Bankruptcy fallout: Landlord of 2 Borders properties in Ann Arbor now in default on 3 mortgages
Agree Realty [NYSE: ADC] is among the landlords grappling with the fallout from Borders' bankruptcy filing last month.
Unlike many of them, Agree is publicly traded - and its portfolio includes two Ann Arbor properties occupied by the bookseller: The flagship store on East Liberty and the corporate headquarters on Phoenix Drive.
For both of those reasons, Agree's recent filing of a report that it was in default on 3 mortgages secured by Borders stores caught my attention.
Angela Smith | For AnnArbor.comDow Jones Newswire did a story on the filing, based on the news that the loans have a total value of $8.9 million and more defaults by Agree are likely.
The story and the situation faced by Agree give a glimpse into some of the real estate dynamics behind the Borders bankruptcy, as it closes 200 stores, threatens to close up to 75 more and opens all of its remaining leases.
Agree holds 7 mortgages secured by Borders properties, representing total debt of $18.5 million. It also leases 14 stores to Borders, which represents 20 percent of the Farmington HIlls company's gross base rent.
Which properties are in default? The SEC filing doesn't get that specific. The only clue is that the total square footage is 366,000.
That's smaller than the largest single Borders property in Ann Arbor: Its corporate headquarters, which Agree listed for sale last year.
But with much of that building empty as the company downsizes - and even subleases space - one has to wonder how long rental payments will continue during the company's reorganization. And it also stands to reason that any renegotiation would involve shedding unused space.
More unused space that Borders has been paying for is downtown, where the flagship store still operates - but the former corporate offices remain part of the Borders debt-sheet. That unused space totals about 44,000 square feet, according to the city assessor's web page.
Initial reaction to Borders bankruptcy included relief that the downtown store and corporate headquarters appeared untouched. Agree isn't feeling that relief right now - and the fundamentals of both buildings will something to watch in coming months.
Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.
Comments
Paula Gardner
Fri, Mar 18, 2011 : 2:53 p.m.
Here's an article from Publishers Weekly about the lease rejections to date - 5 properties, none in Michigan. <a href="http://www.publishersweekly.com/pw/by-topic/industry-news/bookselling/article/46509-borders-gets-dip-outlines-downsizing-rejects-leases.html" rel='nofollow'>http://www.publishersweekly.com/pw/by-topic/industry-news/bookselling/article/46509-borders-gets-dip-outlines-downsizing-rejects-leases.html</a>
Bob Martel
Thu, Mar 17, 2011 : 11:42 p.m.
Please note that it's fairly typical for a commercial real estate loan to go into default automatically if there is a material adverse event such as the bankruptcy of a major tenant. In this case, the default may not have any impact on whether or not the lender gets paid since Agree (or the borrower in the case of the seven mortgages in which Agree is the lender) could decide to continue making loan payments out of other company funds which they might be inclined to do especially if the property is in a good location and/or to avoid precipitating an entity-wide bankruptcy that might drag other valuable assets into an uncertain outcome. In my opinion, the least desirable Border's property that Agree is involved with would be the corporate HQ on Phoenix Drive. In this market, that property is a true White Elephant.
Linda Peck
Thu, Mar 17, 2011 : 7:04 p.m.
What is disturbing to me in this report is that Borders let the situation deteriorate to this. Where is the responsibility here? I am sure there were plenty of clues Borders could not pay their bills before this. Why was it necessary to take it to a default state? Very poor planning I would say.
Dcam
Fri, Mar 18, 2011 : 2:14 p.m.
Moral obligations aside, what differentiates an indivdual person from a corporation is conscience. A corporation has none, and therefore it has no obligations of any kind to anything but itself, and to expect the executives to be the corporate conscience is expecting far too much. Executives are the corporate mind, but they have no personal liability for corporate actions or debt. Bill Ackman's Forbe's profile is one that would give anyone pause to allow him into the tent. According to the profile, he's a looter and power-grabbing shark, and he's also a major cause for Border's failure.
say it plain
Thu, Mar 17, 2011 : 10:57 p.m.
maybe private citizens don't have any more *moral* obligation, I totally agree, but they have a harder time with the fallout than do the 'corporate citizens' in the language of our courts, grrr...
johnnya2
Thu, Mar 17, 2011 : 8:10 p.m.
This is nothing new. Did anybody live through the KMart bankruptcy? They did the same thing. Take existing contracts rip them up and tell employees and suppliers, sorry you ain't getting paid. KMart executives walked away with HUGE sums of money. The assests were bought by Sears for PENNIES on the dollar. The debts were wiped away. Basically taking an eraser to them. Please keep this in mind of you are struggling to pay your bills. Bankruptcy IS an option. Use it. Your credit card company, mortgage company and every other company can go to hell. You have no more moral obligation to these corporations than they show to the general public.
BornInA2
Thu, Mar 17, 2011 : 6:46 p.m.
"It's corporate headquarters..." I think you mean "its", which is the possesive form. "It's" is a contraction of "it is". Proofreading, please, please, please.
CynicA2
Thu, Mar 17, 2011 : 6:23 p.m.
...and the hits just keep on coming!! Like Slim Pickens ridin' the bomb down at the end of "Dr. Strangelove". YEEEEEEHIIIIIII!